Canadians rushing to buy foreign securities, while foreign investors dump ours

Domestic investors put a record amount of cash into foreign securities in December as a struggling economy and crumbling stock exchange at home sent Canadian cash abroad.

Statistics Canada said Wednesday that domestic investors scooped up $17.4 billion in foreign securities for the month, breaking November’s record of $16.5 billion. The buying may come as foreign investors reduced their holdings of Canadian securities, amid a bear market in Canadian stocks and also the steady downward march from the loonie.

Foreign investors sold $1.4 billion in Canadian securities, led by divestitures in federal government bonds. For that fourth quarter as a whole, Canada saw a net outflow of $16.5 billion in funds from the economy.

“Data for December showed Canadians putting another mountain of capital to operate away from country,” said Warren Lovely, head of public sector research and strategy at National Bank of Canada. “Canadian investors have never before directed because their investment to foreign markets because they did in the final quarter of 2015.”

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The flow shows that Canadian investors are increasingly concerned about the prospect for growth in the country, as the S&P/TSX Composite once more fell right into a bear market earlier this month and expectations remain high the Bank of Canada will once more cut rates of interest.

David Tulk, head of worldwide macro strategies at TD Securities, notes that Canadian buying of foreign securities is sensible as domestic investors see few opportunities at home amid a slowing economy, while a deteriorating exchange rate makes it more appealing for investors to dump the loonie.



“The composition of investment was split reasonably evenly between equities and glued income and is justified by both the movement in the exchange rate and in the relative economic performance of Canada versus its international peers,” he explained inside a note to clients Wednesday.

The stampede out of Canadian securities added to pressure around the loonie within the fourth quarter, which saw another steep decline for the currency versus the U.S. dollar.

But while Canadian investors are rushing to market domestic securities, some of the data shows that foreign investor interest in Canada isn’t necessarily over.

Tulk noted that December divestitures were a well-recognized theme for foreign investors because they close their year-end positions. He adds that many from the recent outflows from Canadian assets can be blamed totally on domestic investors, not waning foreign demand.

“On balance, the divestment noted in 2015 is smaller than took place years past and offers a counterpoint to the impression that foreign investors have abandoned the Canadian market amid the collapse in commodity prices,” he explained.

Non-resident investors bought $2.7 billion of Canadian money market products, with strong acquisitions in provincial and company paper. Additionally they added $2.6 billion in stocks for the month, even as Canadian stock prices fell 3.4 percent for the month.

Charles St-Arnaud, economist with Nomura Securities, said inside a observe that you will find signs that weak foreign interest in securities is more than only a seasonal trend, as demand has been weak since May (when the strong inflows of October are excluded). 

He notes that emerging market countries have sold a record quantity of Canadian bonds, which he suggests may have to do with foreign exchange intervention by a few central banks, such as the People’s Bank of China, in recent months.

St-Arnaud adds that many of the inflows into Canadian bonds in recent months were restricted to bonds issued in currencies other than the Canadian or U.S. dollar. He expects the recent weak demand to continue in the coming months.

“With oil prices remaining pressurized and CAD depreciating again, flows will probably remain weak in coming months,” he explained.

jshmuel@nationalpost.com